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Ministry of Taxes simplified registration of limited liability companies in Azerbaijan

Author:

01.02.2019

The objective of large-scale tax reforms initiated by the government of Azerbaijan since 2019 is to facilitate the establishment and operation of private companies. Perhaps one of the most significant changes will be the accelerated registration procedure for legal entities – in twenty minutes.

 

Registration goes online

After changes in the law On State Registration of Legal Entities, the system of registration has become simplified. Now, any legal entity can only register electronically through a single procedure. According to the Director General of the Department of State Registration and Control of the Ministry of Taxes Alakbar Mammadov, since the beginning of 2019, there is no need to approve electronic applications with an electronic signature. In addition, all other registration procedures have been removed. As a result, the number of manipulations required for registration of a legal entity has been reduced from three to one, registration time is reduced to 20 minutes, and the amount of money to start a business is reduced to zero. It does not even require Asan Imza or appeal for registration.

This is incredibly beneficial for future entrepreneurs wishing to continue their activities as a limited liability company. "Previously, one had to go through three different procedures to obtain a taxpayer identification number, which would take three and a half days, paying ₼18 for Asan Imza. Now one can do it in half a day paying zero manats. As soon as the required information is in the system, all statutory documents and a decision of the shareholders for the company are prepared. These documents become available in an electronic office. If the shareholders approve them, they are immediately forwarded to the registration database and accounting department. Information is gathered in a single centre and automatically forwarded to the database of relevant government agencies. As well, they are forwarded online to the servers of relevant banks and notary offices. At this point, the registration process is considered to be legally completed," Mr. Mammadov said.

Some time ago, the cost of Asan Imza has risen, causing the discontent of entrepreneurs. Since August 15, 2018, mobile operator Azercell has begun charging a monthly fee of ₼2.5 (including VAT) for each invoice period, whereas previously it was ₼1. At the same time, the cost of a three-year connection to the Asan Imza service for the population, legal entities and individuals engaged in entrepreneurial activities, representatives of legal entities is ₼18, including VAT, and ₼54.46 for employees of state and local government bodies.

According to A. Mammadov, if at the primary stage the registration of LLC in Azerbaijan does not require Asan Imza and will be carried out through the PIN code, then in the future, for convenience, entrepreneurs will still need to acquire Asan Imza. “I am confident that with the increase in the number of users, the costs will be revised downward,” Mr. Mammadov said. He also believes that all these reforms will ultimately help Azerbaijan further improve its position in the Doing Business report.

 

Next stage

Undoubtedly, the measures taken by the Ministry of Taxes are an important breakthrough in creating the most favourable conditions for doing business in Azerbaijan. After all, there is nothing left to facilitate further in the initial stage. However... According to Mammadov, as of January 1, 2019, 970.3 thousand taxpayers were registered with the tax authorities, of which 125.2 are legal entities, 845.2 thousand are individuals. In general, 45% of the registrants are active, and this figure is even higher for legal entities - 60%.

Ministry of Taxes believes that by the end of this year, the ratio may still change - towards revitalizing the business, taking into account large-scale tax reforms that have touched literally all representatives of micro, small and medium-sized businesses (SMEs). In particular, it is about the provision of serious benefits for businesses, such as exemption from income tax, land tax and VAT for seven years from the date of registration in the register of SMEs. There are also associated benefits relating to the exemption from VAT imports of machinery and equipment, etc.

Benefits for micro-businesses include exemption from income tax, 75% of profit tax and profits from business activities. In addition, legal entities and private entrepreneurs engaged in micro-businesses are exempt from property tax. In general, this exemption can be considered another form of simplified tax for business entities, since with a 4% simplified tax on income of ₼1,000, the tax was ₼40. Given the substantial limitation of the scope of simplified tax coverage, the provision of such benefits for microbusinesses is sort of an alternative.

Since 2019, the single simplified tax rate is set at 2%, while the number of taxable legal entities and individuals has been reduced.

In addition, the amendments provide tax benefits for entrepreneurs engaged in retail trade or doing catering business. In this case, they will indicate only the part of the tax on profits or income collected from transactions paid through POS-terminals. The tax exemption in this case will be 25%. The goal is to stimulate cashless payments, on the one hand, and to ensure transparency in determining the real business turnover, on the other hand.

According to Samira Musayeva, Director General of the Tax Policy Department of the Ministry of Taxes, in 2019, microbusiness will pay taxes already with benefits/concessions calculated.

In short, the tax authorities, taking a step from their side to simplify communication with entrepreneurs, hope for an adequate response from their side. As a result, the reduction of budget revenues from tax benefits should be compensated through an increase in the number of taxpayers. Firstly, all dubious moments have been resolved to start a new business, and secondly, it is now more profitable to be friends with fiscal departments than to get involved in dubious activities like evading payments.


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